In a significant policy reversal, the Department of Veterans Affairs (VA) has announced that it will require all covered drugs under the Veterans Health Care Act (VHCA) to be offered on Federal Supply Schedule (FSS) contracts, regardless of whether they meet the “country of origin” standards of the Trade Agreements Act (TAA).1 As discussed below, this policy shift will have an immediate impact on drug manufacturers and suppliers, especially the large number of drug manufacturers whose products are not TAA-compliant because of the use of active pharmaceutical ingredients (API) from India and China.

Under the TAA, government agencies, like the VA, are generally prohibited from procuring goods that are not made in the United States or in certain “designated countries.” Drugs manufactured with API from non-designated countries, like India or China, generally fall short of this standard and are not TAA-compliant. Unlike other government agencies, the VA has traditionally refused to make “non-availability” exceptions to the TAA’s country-of-origin requirement. As a result, drug manufacturers and suppliers have been blocked from offering non-TAA-compliant products on FSS contracts. That is no longer the case.

Under the new policy, the VA is now requiring that all covered drugs, regardless of county of origin, be available on a 65 I B FSS contract. And, for the first time, VA contracting officers will have the authority to issue “non-availability determinations,” permitting the VA to list non-TAA-compliant covered drugs on FSS contracts.

Contracting officers will consider two principal factors in making individual non-availability determinations. First, they will consider information provided by the offeror that neither the drug at-issue, nor similar products, is made in the United States or a “designated country” in sufficient quantity to fulfill the VA’s requirements. Second, they will consider the fact that the offered product is a covered drug under the VHCA and thus the manufacturer is required to make the drug available for procurement on its FSS contract.

The VA is implementing its new TAA policy on an expedited basis. Manufacturers must immediately list non-TAA-compliant covered drugs on their FSS contracts. Manufacturers that already have FSS contracts must submit a Request for Modification to add their non-TAA-compliant products. Companies that currently do not have an FSS contract, because all their covered drugs are non-TAA compliant, must enter into an Interim Agreement with the VA, enabling their covered drugs to be considered for an FSS contract. The key deadlines are as follows:

  • April 26, 2016: Submit Non-Federal Average Manufacturer Price (FAMP) information for TAA non-compliant covered drugs, if the company has not already been submitting Non-FAMPs for those products.
  • May 6, 2016: Submit signed mass modifications, requests for modification to add TAA non-compliant covered drugs, and Interim Agreements.
  • June 6, 2016: All TAA non-compliant drugs must be on an FSS contract or Interim Agreement.

In conjunction with its new policy, the VA has issued an FSS contract mass modification (Mass Modification 0004, Schedule 65 I B). The VA sent a link to this mass modification, along with addition procedures, via a “Constant Contact Notice” on April 19, 2016.

The VA’s new TAA policy is an important development for several reasons. First, it reconciles the longstanding legal conflict between the TAA’s country-of-origin requirements and the VHCA’s requirement to make all covered drugs available for purchase under the 65 I B Schedule program. Second, and perhaps most significantly, the new policy opens up FSS contracts to hundreds of pharmaceutical products that are manufactured with API from non-TAA designated countries. As a result, patients will have better access to a host of important drugs, and manufacturers of covered drugs will be able to participate more fully in a key market.